Angela Staples
PBPA General Counsel
The Texas Supreme Court recently requested full briefing in a petition for review from the Eighth Court of Appeals in El Paso, titled Clifton, et al. v. Johnson, et al. The petition for review requests that the Supreme Court reverse the appellate court’s judgment and render judgment for the Appellants. The issue at hand involves a 1951 deed that conveyed a non-participating interest that was described in several different ways. The main question centered on whether the language of the deed reserved a fixed versus floating interest.
The relevant language of the deed is as follows:
Grantors … do Grant, Sell and Convey, unto the said [grantees], an undivided one-one hundred and twenty-eighth (1/128) interest in and to all of the oil, gas and other minerals in and under the following described tracts of land situated in Reeves County…
It is understood and herein stipulated that said land is under oil and gas leases providing for a royalty of 1/8 of the oil and certain royalties or rentals for gas and other minerals and that Grantees herein shall receive one-sixteenth (1/16) of the royalties provided for in said lease insofar as the same cover the above described land, but Grantees shall have no interest in or be entitled to nor be entitled to receive any part of any rentals paid under said leases, nor shall the Grantees have any interest in any bonus money received by Grantors, their heirs or assigns, in any future lease or leases given on said land or any part thereof, and it shall not be necessary for the Grantees to join in any such subsequent lease or leases so made; that Grantees shall only receive under such subsequent lease or leases a 1/128 (1/16 of the usual 1/8 royalty) part of all of the oil, gas, and other minerals taken and saved under such lease or leases and Grantees shall receive same out of the royalty provided for in such lease or leases. (emphasis added).
In considering whether the subject deed assigned a fixed or a floating interest, the court of appeals first looked to the Texas Supreme Court Case, Van Dyke v. Navigator Group[1], and first noted that “special rules apply to interpreting deeds of a certain era that contain conflicting fractions” and reiterated the higher court’s holding that there exists a “rebuttable presumption that the term 1/8 in a double fraction in mineral instruments of this era refers to the entire mineral estate.”[2] The court of appeals also pointed out that, “[a]s the Texas Supreme Court has repeatedly noted, oil and gas leases of a ‘certain vintage’ almost invariably set forth a 1/8th royalty, and the prevalent belief was that a royalty interest would always be 1/8. [citation omitted].”[3] Thus, the court of appeals held that the deed conveyed a 1/16th mineral interest, noting that such a holding was “the only way to harmonize the conflicting fractions in the […] Deed and give meaning to every provision in the Deed.”
Appellants, in their Petitions for Review, asked the Texas Supreme Court to clarify whether the facts in their case overcome the rebuttable presumption set out above. Specifically, they ask that the Court consider the following questions (among others unaddressed in this article): 1. “What is the ‘era’ of deeds to which the [rebuttable] presumption applies?”; 2. “[D]oes the Van Dyke presumption—founded on the assumption that the deed’s parties mistakenly believed 1/8th would always be the royalty fraction—apply when the deed’s language demonstrates the parties’ correct understanding that 1/8th may not always be the royalty fraction?”
Whether the Texas Supreme Court will accept the petition for review, and if so, provide some specific examples of when the rebuttable presumption set out in Van Dyke is or is not rebutted, are equally fascinating and important judicial occurrences. In Van Dyke, the Court acknowledged that the presumption was rebuttable, but simply stated generalized ways that it could be rebutted. Notably, the Court did not (or could not?) point to any real life examples of language which would overcome the presumption favoring a floating interest.
[1]
[1] Van Dyke, et al. v. Navigator Group, et al., 2023 WL 2053175 (Tex. 2023).
[2]
[2] “[T]he very use of 1/8 in a double fraction in a deed of this era ‘should be considered patent evidence that the parties were functioning under the estate misconception.’”
[3]
[3] “[P]arties would use the term 1/8 as a placeholder for future royalties generally—without anyone understanding that reference to set an arithmetical value.” This doctrine is referred to ‘the legacy of the one-eighth royalty”.